Markets take Syria Strikes in Stride.
The markets are taking the surgical strike at the heart of Syria’s chemical weapon program in stride as traders had priced in this outcome with a high degree of probability. Given the universal condemnation and overwhelming support for this military action, it’s improbable there will be retaliation from Russia or Iran, Syria’s principal backers, and for the time being, the US_UK _France alliance is considering this a mission accomplished.
With trade war and now Syria fatigue likely to set in, however, it’s best not to get too comfortable at this point as market risk sentiment swings will remain large this week. Even more so with the market focusing on positive trade headlines and Syria de-escalation, investors could be caught flatfooted to any negative headline turns in the days ahead.
Global political concerns look likely to remain a focus in the week ahead, so we should expect the markets to stay at the mercy of headlines risk. However, so far the market is showing little appetite to chase risk assets higher.
Enough has been written and said about trade wars in the last few days, but it is far to early to put trade tariff on the back burner anytime soon as this tit for tat escalation is a lot more intense than anyone expected. Moreover, with the level of investor complacency running high the market is very prone to headline risk. Especially with China making overtones for Japans cooperation in dealing with US restriction on steel imports
While Syria risk fatigue will likely set in today, so we should expect some profit taking to occur. Nevertheless, Middle East tensions and geopolitical risk remain incredibly high suggesting the oil markets risk premiums will stay in check, as the global oil supplies remain vulnerable to any significant supply disruption.
Recent events suggest re-imposing Iran sanctions remain high given Tehran is a principal backer of Syria. Traders should not under-price the Bolton factor. Also, if we factor Saudi Arabia, Iran and even Israel into the escalation matrix, things could get messy very quickly, and Oil prices would surge.
With much of Syria escalation risk priced into the Gold Markets, it’s a somewhat muted Asia open for gold markets despite the weekend escalation. However, the markets remain on heightened risk alert for more escalations and provocations in the Middle East, which remains a real powder keg. The potential for full-out regional conflict remains high not to mention all the Cold War memories has investors on edge. Also, while U.S. President Donald Trump tweeted out “mission accomplished” following the air strikes on Syria, the world is no safer now than before. But at least for the time being market remains stable
The currency markets are starved for some basic fundamental premise. However, other than a heavy dose of Fed speak there not much to highlight besides March retail sales on Monday, but the remainder of the US calendar is unusually light. China, on the other hand, has the monthly ” data dump” GDP, industrial production, retail sales, and fixed asset data which should all be of particular interest to the markets.
Nevertheless, with former FBI Director Comey’s book tour set to start this means that headlines around the Russia investigation could dominate currency views this morning.
The Japanese Yen
With all the geopolitical risk in the market, it is hard to see USDJPY move above 108. Also heard on the street in Tokyo, Japanese exporters are expected to increase USD selling when the market approaches that level.
The market remains confined to well-worn ranges and in desperate need of some central bank guidance as both ECB and FEDS appear non-committal at this stage.
The Australian Dollar
Aud remains supported by stronger Chinese imports and suggestions US may re-join TPP. However, the Aussie remains very prone to shifting risk sentiment.
Risk sentiment remains fragile and despite the improving prospects of trade and tariff war reconciliation $Asia continues to trade in a disorderly fashion.
Much of the MYR appeal has come from its undervalued call, and this should continue to gain interest among investors. But with the BNM likely to stay neutral the remainder of the year in the wake of tepid inflation readings, it will be up to the USD dollar to do the heavy lifting to reach the 3.80 USDMYR levels.
Inflows ahead of the election remain tepid, as such; the MYR should remain confined to the upper end of its recent trading ranges.